In praise of Proposal 1

HOUGHTON – Local business figures and officials turned out Friday morning for a walkthrough of a statewide ballot proposal for a revenue-neutral elimination of the personal property tax.

James McBryde, vice president and senior advisor for the Michigan Economic Development Corporation, gave a talk on Proposal 1 at Michigan Technological University’s Advanced Technologies Development Center Friday morning.

The proposal, which will be on the Aug. 5 ballot, would eliminate the personal property tax this year for small businesses with property valued at less than $80,000 this year – about 75 percent of businesses in the U.P., McBryde said.

McBryde said eliminating the current tax removes an onerous burden on businesses – both the tax and the pain of recalculating property value each year as it depreciates. Businesses have also been hesitant to purchase new equipment, he said.

“Small businesses tell us it often costs more money to calculate the tax than to actually pay it,” he said.

A kitchen manufacturer in McBryde’s hometown of Mount Pleasant has calculated it would go from having one of the highest-cost of its plants to one of the lowest, he said.

Larger businesses with more than 50 percent of their equipment value devoted to manufacturing would see it phased out over time, starting in 2016, when all personal property placed in service before 2006 and after 2012 would be exempted. The years in between would be covered gradually until 2023, by which time all eligible manufacturing personal property would be exempt. Businesses must reapply annually for the exemption.

Eligible manufacturing personal property for business of over $80,000 will be subject to a state Essential Services Assessment, which will be a set number of mills depending on how long ago the property was bought.

The new proposal would reduce the amount of taxes paid by businesses by an estimated $500 million. To maintain full funding for schools and municipalities that now receive the tax money, the proposal would also create an authority that would receive about 60 percent of the state use tax, a sales tax levied on remote purchases, telecom and lodging. It would then be disbursed to communities based on the amount of money they are losing from the original tax. The estimated amount of use tax going to the statewide authority would go from $96.1 million in 2016 to $572.6 million in 2028. In some years, McBryde said, local units could see reimbursement of more than 100 percent.

The use tax would not affect local revenue sharing agreements, he said.

State reimbursement will come from advanced battery credits for car companies and other companies that come off the books in 2016 and the state ESA on larger manufacturers. The ESA won’t need to be levied or administered by local governments, which will also be assured of guaranteed revenue from use tax and lose the need for personal property tax abatements, McBryde said.

The proposal has won approval from both major parties as well as a mix of interests including business groups, county associations and K-12 school organizations.

The only group McBryde knew of that opposes the act is Michigan National Organization for Women. According to its website, NOW is urging a no vote on the proposal because it believes the proposal will reduce state revenues and services, most of which serve women and families.

Asked what would happen if the use tax revenue declines, McBryde said he couldn’t imagine anything that would reverse its upward trend.

“It had robust growth through the Great Recession (in 2008),” he said. “The only way I can answer is I don’t foresee that happening.”

Houghton County Treasurer Kathleen Beattie said the proposal could be an improvement for the county. She particularly liked the ESA, which she said will be preferable to local treasurers having to go to businesses and collect jeopardy assessments.

“That’s revenue that’s not coming in if it’s not being aggressively sought after, so this is a better solution,” she said.

“I like the idea that on the ESA, you’re going to collect it and not the local treasurer. That will be a great benefit in getting those taxes paid, because when they go delinquent, they don’t always get paid.”